If it's the fourth quarter, it must
be time to finish the long-range business plan

BY JUNU KIM

The
current year still has one more quarter to go, but people across the enterprise
are currently busy looking at the future. As is normally the case this
time of year, Boeing is compiling its long-range business plan, a key
report that the company uses to assess its financial performance and outline
its internal expectations for shareholder value creation.

Boeing uses the long-range business plan to guide its future business
performance, not only from a corporate perspective but also from an individual
business-unit standpoint, said David Ramey, vice president of Financial
Planning and Analysis. Through the plan, Boeing effectively sets targets
for its business performance. The plan is also a key input into external
guidance Boeing Investor Relations provides to the financial community.
The efforts that Boeing people put into meeting these targets, through
cost containment, revenue generation and increased efficiencies, can help
boost not only the value of the company's stock but also the payouts from
performance-based compensation programs such as the Employee Incentive
Plan.

"Boeing is a business, and we are all responsible to our shareholders.
Without them, we wouldn't exist," Ramey said. "Each employee needs to
act like a business person and understand his or her impact on the long-range
business plan and how he or she contributes to it, in terms of lowering
costs, increasing revenue and minimizing cash expenditures."

The long-range business plan looks forward for five years. The plan currently
in development will focus on Boeing's performance from 2004 to 2008.

The long-range business plan utilizes a metric known as economic profit*,
a figure that reflects the value Boeing people are creating for the company's
stakeholders and is the primary measure of how Boeing and its employees
are doing. Boeing defines economic profit as the company's net operating
profit after taxes, minus a charge for assets. These terms take into account
entities such as revenues; expenses such as labor, overhead, materials,
research and development expenses, and sales and marketing expenses; taxes;
and assets such as inventory, equipment and land. (Click
here for more information on economic profit.)

Boeing creates the long-range business plan in a "flow up" manner, starting
with business unit input. In other words, the business units determine
how much economic profit they will generate in the span of the long-range
business plan being created. These projections are based on assumptions
of business gains and marketplace conditions; for example, Commercial
Airplanes' projections for when the jetliner marketplace will recover
from its current state can affect its forecast. The business unit forecasts
may reflect input from the new Independent Cost Evaluation team.

The general expectation of the Boeing board of directors, which approves
the long-range business plan, is that the business units and the company
continue continue to improve performance each quarter and year. However,
in the forward-planning process the company needs to recognize market
conditions such as the current downturn in commercial aviation.

The Financial Planning & Analysis team at World Headquarters integrates
business-unit plans into a single plan. The team looks to ensure that
the forecasts spell out improved performance and also addresses any differences
in the business units' assumptions.

Once the team compiles the coordinated plan, it presents the plan to
Boeing Chairman and CEO Phil Condit and Chief Financial Officer Mike Sears.
After their review and any further adjustments by the business units,
the plan is presented to the board of directors during the fourth quarter.

If the board believes the plan calls for sufficient value creation for
Boeing shareholders, the plan is approved. Then, every month the Financial
Planning & Analysis team discusses each business unit's and total company
performance with the CFO; the Executive Council and the board of directors
also review performance at least quarterly. Financial Planning & Analysis
ensures the financial information is integrated and properly reflects
the roll up of all the business units.

Because certain key compensation benefits are tied to economic profit,
Boeing people have incentive to help the company meet its financial goals.
Indeed, employees can help bolster economic profit by doing things to
run a healthy core business, such as containing costs, helping implement
efficiencies and reduce cycle times.

"We'd like everyone to think like a business person," Ramey said. "Lowering
costs, increasing sales, bringing in cash faster, getting a job done in
less cycle timeall those things contribute to running a healthy business."

* Represents a non-GAAP (Generally Accepted Accounting Principles)
measure. Boeing does not intend for the information to be considered in
isolation or as a substitute for the related GAAP measures. Other companies
may define the measures differently.